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Turning a Saver into a Spender in Retirement

You spend your entire career saving so that you can stop working. Once you retire, you may be surprised to realize it's hard to change your pre-retirement mindset about the need to save money. A lifetime of saving is a positive habit, and there are emotional and psychological forces that make it feel awkward to change course. Consider these tips and tools to help you navigate the transition from saving to spending.

Finalize your roadmap. You spent years developing a savings plan that helped you reach financial independence. But building up money is only half the journey. Retirement and financial independence is a long-term stage of life. You also need to develop a plan for what retirement and the spending of those assets looks like. No goal is too big or small.

You will need a complete understanding of what your annual living expenses are in retirement. Make sure you include your charitable goals, vacations and lifestyle hobbies like playing golf or eating out. You also need to consider big, one-time expenses that occur more infrequently, such as taking the entire family with the grandkids on a cruise, buying a new car or a trip to New Zealand.

Once you have a plan developed that takes into account fully funding all your goals, you can feel liberated and comfortable that you are covered. Eliminating worries allows happiness and fulfillment to occupy more of your daily routine.

Decide what matters most. Far too often, individuals spend a lifetime accumulating wealth only to realize that all they did was accumulate wealth. Money and wealth building should always be viewed as a tool to help you focus on the things in life that truly matter.

The definition of what "truly matters" varies from person to person. It might mean security, travel, providing for loved ones, charitable inclinations, community involvement or starting a business. Whatever your values, it's always important to keep in mind that money is a tool to help you achieve those goals. It's not the goal in and of itself. You should have a nice balance of building for the future (or deferring spending if you are in retirement) and enjoying the present.

Plan for children and grandchildren. Almost anyone who works and saves consistently throughout his or her life has the potential to become a millionaire. But if you do that, it's not guaranteed that your children and grandchildren will have the same work ethic. In many cases, second and third generations of wealthy families don't have any trouble burning through the assets of the first generation. Considering this, it might make sense to begin using your resources to provide opportunities that might otherwise be squandered if you were not in control of the financial decision making.

For example, you could fund family trips or pay for the education of family members. You could also provide opportunities to teach younger generations how to replicate your sound financial management, such as offering a start-up loan or beginning an annual gifting strategy. You have spent a lifetime building and accumulating these assets, so it might be nice to actually get to see your children and grandchildren reap the fruits of your labor while you are still alive.

Set up systems. Moving from saver to spender is a process. As with most major lifestyle changes, it makes sense to ease into it to avoid setting yourself up for failure. Setting up the right systems can help.

An easy system to put into place in retirement, especially if you are living off of retirement assets, is a "retirement paycheck." Just like you determined your spending budget based off the monthly or bi-weekly paycheck you received for the bulk of your working career, the same holds true in retirement. If you have a $1 million portfolio that needs to last you for 30 or 40 years of retirement, think of it as a monthly paycheck of about $3,300 (assuming a 4 percent withdrawal rate before taxes) rather than a million-dollar account you can draw off of as needed.

If you find yourself in a situation where you have more than enough retirement income flowing in from Social Security, pensions and other resources, it may make sense to continue saving on a systematic basis just like you did while you were working. This is especially helpful if there are tangible goals you know you would like to fund, and it gives you some motivation to prepare for specific events and reward yourself once you hit that goal. Financial goals might include replacing your car, taking a trip or buying a new watch.

Moving from your working years to your retirement years can be a very emotional and unsettling time. Having a strategy can eliminate some of the stress and burdens of living off your savings in retirement.

Brian Preston and Bo Hanson are fee-only financial planners who host the podcast, "The Money-Guy Show".